Reminder: Student Loan Lenders are not Charities

Michael Lux Blog, Student Loans 2 Comments

The title here is pretty much stating the obvious.  Spend 30 seconds with customer service at the average lender, and it will become painfully clear that their primary goal is not to help you.

However, if you remind yourself of the fact that your lenders are in business to make money, you can make smarter decisions when it comes to managing your debt.  While that fact results in a couple painful realities, it can also can put the customer in a position of power.

(Editor’s Note: this article contains a number of sweeping generalizations.  There are a number of exceptions to many of the statements that follow, but it is good food for thought next time you are working on your student loans.)

Lenders don’t usually need repeat business

Some businesses are dependent upon repeat business.  If you get your hair cut at the local barber or visit your butcher, odds are pretty good they will be polite with you, and try to treat you as well as possible.  They want you to come back.  Student loans are often an exception.  If you are in repayment, it means you are done with school.  If you are done with school, you won’t likely be needing more student loans in the future.

Essentially you are contractually obligated to work with this company, and they have a minimal desire to see to it that you have a positive experience.

Why does this matter to you?

If you go in to the local flower shop and tell them that something has made you angry or unsatisfied, they will naturally try and fix things.  Student loans are a subject that anger many people, and unlike the flower shop, they don’t really need you to come back in the future.  Telling your lender that they are making you angry or showing your anger will usually not get you anywhere.

Customer Service sucks because crappy service is less expensive than high quality service

With lenders having very little motive to continue to earn your business, there is not much of an incentive to have a great customer service experience.

Clearly, some customer service is necessary as people need to manage their debt and occasionally have questions answered.  However, cutting corners can result in huge profits.  Limit call center hours… make more money.  Put less effort into training… make more money.  Use cheap facilities and equipment… make more money.

Why does this matter to you?

First, you shouldn’t expect much when you make a phone call and you should be careful not to rely upon what you are told too much.  Until your lender puts something in writing for you, it is usually a good idea not to depend upon that information.

Second, you can use this information to better put yourself in the position of the person on the other end of the phone call.  Odds are good they are being paid poorly, working for people who are being paid poorly, and having unpleasant conversations all day long.  If you are the 37th customer to treat them like crap on a Monday, you are not likely to get what you want.  The more you can do to help them help you, the better off you will be.

Late fees are a reality because they are pure profit

If you get stuck with a $25 late fee because you were a day late for whatever reason, you will be pissed, but there is only so much you can do about it.  Plus, how much time and effort are you willing to put in to dispute a $25 late fee?

On the lender side, if they can charge a bunch of customers a $25 late fee, they can bring in a ton of money with little effort.

Why does this matter to you?

Be alert.  Make sure you are not missing any deadlines, and be constantly on the lookout for added fees.  If you bury your head in the sand to this possibility, it could cost you money.

Lenders will nickel and dime you, but there are things they fear

Even though lenders don’t have the same concerns of local businesses, there are still things they fear.

One thing that all student loan lenders should fear would be the Consumer Financial Protection Bureau.  This is the government agency tasked with making sure that customers get treated properly.  Did you know that you have the ability to directly file a complaint with the CFPB?  Did you know that lenders were required to respond to your compliant in writing to the CFPB?

Though lenders may not need your business in the future, they still need new people to sign up for loans each year.  If you led a public outcry against your lender, they may respond.  We saw this work last year for one family of a deceased Duke Law student.

The Bottom Line

Student loan lenders are in business to make money.  Their business works differently than a number of other businesses, but if you keep these differences in mind, you can be a better consumer.

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Money Beagle

Good points all around. The customer service is a good point, they know that if they increase their customer service costs to provide better satisfaction, their bottom line would go down. In their case, they net nothing by improving their service. It sucks as customers, but for those running the business whose job it is to deliver maximum profits, they have to take the angle on what’s best for the business.


You just need to remind yourself that the loans are guaranteed by the government. It is a great deal for the lenders, but you should use with care.